3 Good Reasons to Apply for a Credit Card (And 3 Bad Ones)

3 Good Reasons to Apply for a Credit Card (And 3 Bad Ones)

Credit cards are an inevitable reality in today’s financial world.  We’ve outlined a few of the reasons why some people might genuinely need a credit card—versus some reasons it might be in your best interest to skip applying. 

Just remember—having a credit card doesn’t mean you have to go into credit card debt. Let’s dive in.

Good Reasons

1. Building Credit History

While being wary of credit card debt is a good reason to avoid credit cards all together, that decision could come back to bite those who wind up needing to apply for other forms of credit in the future. Opting not to build any credit history could make it difficult to take out a loan for a house or car down the road. 

In fact, according to credit bureau Experian, “no credit history is almost as bad as negative credit history.” Everyone should have some history to point to come application time.

2. Capitalizing on Convenience

If you determine you don’t need a credit card, you may face some inconveniences when it comes to travel.  Why?  Because hotels and rental car agencies almost always require a credit card to secure a reservation—and some even require that you put a card on file in order to cover incidentals. 

Sure, using a debit card connected to your checking account is possible, but doing so might result in several hundred dollars of your actual money being put on hold until the transaction clears.

3. Gaining Perks

There are some legitimate perks that come with having a great credit card.  For example, many credit cards offer fraud protection, meaning they will cover your losses if your card has been stolen and used for purchases.  Once you report that your credit card has been stolen, the Federal Trade Commission states that the maximum amount of money you could be on the hook for is $50 per card.

(If $50 still sounds like a lot, imagine if someone stole your debit card—you could be out your full account balance.)

Other credit card perks include rewards such as cash back, travel protection and vouchers and gift cards. Check out Sioux Falls Fed’s Better Rewards Visa® Credit Card for a great example!

Bad Reasons

1. Making Ends Meet

If you make enough money to qualify for a credit card but you already have too many bills to manage comfortably, adding a credit card to your current obligations isn’t always the greatest idea. Work on eliminating some of your bills and reducing your spending before you add a credit card into the mix.

2. Being Tempted to Overspend

It takes a lot of self-control and self-discipline to use credit cards the right way.  Without these skills, you can easily spend yourself into thousands of dollars in debt and ruin your credit history in the process.  If you know you may not be able to control yourself with a credit card, making the decision not to have a credit card may be the best thing for your financial future.

Be smart, and know your limits—keep your spending habits in check, and you might be better equipped for a credit card in the future!

3. Applying for a Discount

You reach the cash register, and you are asked, “Would you like to apply for our store credit card and save 10 percent?” You may be thinking, “Sure, why not?” But hold on—it may be best to just say no. And here’s why:

  1. Every application erodes your credit score—you may not know that simply saying yes to the store discount can drop your credit score by as many as 10 points.  If you have a high credit score, that may not cause you too much stress.  But if your rating is on the borderline of “fair” and “good,” a new credit card application could sink your score into a lower bracket.
  2. Store cards often have higher interest rates—in-store cards typically have lower credit lines, fewer perks and much higher interest rates.  So if you are applying for a credit card, be aware that unless you pay off your balance every month, the cost of those purchases can balloon over time.

The Bottom Line

Not all credit cards are created equal.  If you decide a credit card is a good fit for you, make sure to read the fine print.  Check for an annual fee—not all cards will charge them. Make sure you understand any promotional introductory rates and what your rate will look like in the long-term. Can you make cash advances without being charged fees—and do the rates vary?

Think about these factors. Then talk to one of our lenders, or click here to learn more about your credit card options.